Lots of people are thinking about the form of payments between insurance companies and providers for health care services, but it is also important to think about how each such approach would be marketed as an insurance product to the population.

The payment model that gets the most attention is capitated, or global payments, combined with accountable care organizations. In this environment, an average annual budget is established for each person served by an integrated health care delivery system (ACO), and that budget is shared among the providers according to some mutually agreed upon arrangement.

But the insurance product that would accompany this kind of payment scheme is often left without much of a description. As I have talked with insurance executives, they often fail to explain how they would offer consumers a desirable choice for a product based on this payment plan. Instead the main focus seems to be on shifting risk from the insurer to the providers, reducing the amount of unnecessary expenses, and sharing the benefits of those changes between the insurance company and the providers. Over time, the theory goes, the cost curve is slowed and premiums go up less quickly. But, it remains unclear what the role is for consumer in this scheme.

Eric Schultz, the CEO of Harvard Pilgrim Health Care, is offering a different view. I heard him give a talk the other day and have read some of his company’s materials. I will try to offer a fair representation here.

Eric recognizes that changes in the payment and insurance system will have to evolve over an extended period. Noting that the current system has been in place for decades, he views that time frame as being well over five years, and more like ten. He seems to be advocating a step-wise plan, one that allows time for consumer and provider education and one that envisions mid-course corrections when the inevitable unintended consequences emerge. He is keen to avoid the kind of consumer and physician misunderstanding and resentment that characterized previous adventures in capitation.

His approach is exemplified in two new product lines being offered by HPHC. The first is called Focus NetworkSM and is described here. It is being tried out first in Central Massachusetts (see map). In essence, this is a plan that offers consumers less choice, relying on service from lower cost providers, and it enables HPHC to offer a premium that is 10 to 14% below the standard product.

How is it sold? While the Focus Network offers less choice, the consumer gets a clear choice between it and the standard plan. In a side-by-side comparison, a subscriber can see the difference clearly. Very importantly, HPHC advises its corporate customers to offer employees a defined dollar contribution towards their health care benefit. Doing it this way, rather than offering a defined percentage, ensures that the price differential between the two plans is not watered down in the eyes of the subscribers.

The second product line is a tiered network, where providers are grouped according to their cost. Well, not cost — price — i.e., the negotiated rates between HPHC and the providers. Physician groups (not individual doctors) are to be put in a tier based on the total medical expense of their patients (including hospitalization costs.) Hospitals will be specifically tiered based on their own expenses. Then, consumers get to choose their site of service, knowing that their personal co-pays and deductibles rise or fall depending on the tier chosen.

Under both schemes, the fee-for-service payment regime remains in effect, with a healthy dose of pay-for-performance incentives. In other words, global payments are not viewed as being necessary to change practice patterns or to influence consumer choice.

As I see it, Schultz is willing to bet that his approach will bend the cost curve with potentially less public outcry and backlash than might occur with others. I also am guessing that he wants to maintain HPHC’s reputation among consumers as an excellent HMO, something that is important as employers choose between HPHC and other insurers. He is doing so in a way that engages and educates consumers — and offers elements of choice — rather than imposing a new system that will appear to some as taking it away.

Paul Levy is the former President and CEO of Beth Israel Deconess Medical Center in Boston. For the past three years he blogged about his experiences in an online journal, Running a Hospital. He now writes as an advocate for
patient-centered care, eliminating preventable harm, transparency of clinical outcomes, and front-line driven process improvement at
Not Running a Hospital.

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10 Responses for “HPHC Goes Its Way, Thoughtfully”

  1. pcp says:

    Great! These sound like practical ideas that can lead to fairly rapid change.
    I’m somewhat confused by:
    “Well, not cost — price — i.e., the negotiated rates between HPHC and the providers. Physician groups (not individual doctors) are to be put in a tier based on the total medical expense of their patients (including hospitalization costs.) Hospitals will be specifically tiered based on their own expenses.”
    Cost, price, expense, negociated rates: what is it exactly that determines which tier a hospital is in?
    I think it’s crucial to let patients know that, if they want to utilize the institutions that have negociated higher rates, they will pay more for the privilege. That could really bring rates down fairly quickly.

  2. Interesting… The term “quality” does not appear here even once. Is it not part of HPHC’s offerings?

  3. Infocents says:

    Do those tiered and captivated plans expose the ‘groups’ (like nppes + pecos)? How will consumer have access to the trends and price options between the so called ‘tiers’? While affordability is considered, will measure of both subjective evaluation and evidence based metrics also be included? How will consumer navigate such a sea of complex provider networks and metrics by condition and specialties? Some of the larger insurance companies have been doing this for many years in terms of tiered networks and centers of excellence. While these are often due- dilligence for a insurance companies acturials and performance and improvement clinical programs, these informatics are not available to the consumer.

  4. This post was very helpful in my understanding of the letter HPHC just sent me about their new “tiering” progam. I had no idea what HPHC ws trying to say in the letter, except that it might be “coming to my area soon”. Now I understand that this new insurance offering is just an extension of the drug tiering methodology to physicians and hospitals. Like the drug tiering, it is based solely on price and will assume “equal quality” between all brands. I am hoping that HPHC won’t indicate which physicians and hospitals they think are “generic”.

  5. botetourt says:

    The days where providers-hosps and docs-can keep using “quality” as an excuse for expensive care are over. My assumption is that care processes will be measured, and when and if available, outcomes will be used to assure quality. My other comment is that I still have trouble understanding why hospitals and physicians are so complacent about allowing existing insurance companies to drive these discussions–all the while knowing that their main interest is to maintain their hefty margins while the resources available for patient care keep shrinking? We need to find or create some new partners who will be happy understanding that in this new world, the transactions of healthcare don’t need to cost 15-20% off the top.

  6. Tom Leith says:

    “Physician groups (not individual doctors) are to be put in a tier based on the total medical expense of their patients (including hospitalization costs.”
    @Margalit & @HMathewson
    I’m sure they’d like to have good measures of quality, but I think they’re trying to use “total expense including hospitalization” as a proxy. Avoidable hospital trips and overlong stays add up quick, yes? Are they saying (for primary care and other non-inpatient-types) “not hospitalized” == “good quality care”? For surgeons & so-forth are they saying “controlled LOS” == “good quality”?
    If this works even roughly, it has the benefit of not having to name names, as it were.
    t

  7. You are making assumptions, Tom.
    All I hear is “lower cost”, sorry, “lower price”.
    You can drive “total expense including hospitalization” down in a hurry in many different ways.
    Haven’t we seen this movie already?

  8. pcp says:

    Why should the patient who chooses to see her neighborhood PCP subsidize the patient who chooses to go to the medical mecca and receive the same care at three times the price?
    I don’t think anyone has definitely shown a correlation between “quality” (which, as Ms. Gur-Arie points out in another thread, we really can’t measure yet) and negociated fee schedule.

  9. nate says:

    “I think it’s crucial to let patients know that, if they want to utilize the institutions that have negociated higher rates, they will pay more for the privilege. That could really bring rates down fairly quickly.”
    Some HMOs and similar entities have tried this before, like an expanded cafteria plan. We will give you $X to spend which would cover the capitated cost of these system, if you want to enroll in a more expensive system you are free to do so but are responsible for the difference.
    I, and many employer clients, would really like to get out of telling people where to go.

  10. Joan says:

    I would love to see some number crunching about how HPHC’s administrative costs syphen off needed resources for what actually happens between patients and health care providers. I see HPHC repeatedly put the responsibility onto the consumer to advocate for himself, while giving the HPHC employees more work to do. Sad and wasteful.

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